EXHIBIT 10.4




         FIRST KEYSTONE CORPORATION 1998 STOCK INCENTIVE PLAN



                                 27


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                    THE FIRST KEYSTONE CORPORATION
                      1998 STOCK INCENTIVE PLAN

     On February 10, 1998, the Board of Directors adopted the First
Keystone 1998 Stock Incentive Plan (the "Plan") and reserved 100,000
shares of Common Stock for issuance under the Plan. The purpose of
the Plan is to advance the development, growth and financial
condition of the Corporation and its subsidiaries by providing
incentives through participation in the appreciation of capital
stock of the Corporation in order to secure, retain and motivate
personnel responsible for the operation and management of the
Corporation and its subsidiaries. The Plan is designed to attract
and retain individuals of outstanding ability as employees of the
Corporation and its subsidiaries, to encourage employees to acquire
a proprietary interest in the Corporation, to continue their
employment with the Corporation and its subsidiaries and to render
superior performance during such employment.

     The Plan became effective as of the date it was adopted by the
Corporation's Board of Directors, subject to the approval of the
shareholders of the Corporation.  Any and all options and rights
awarded under the Plan before its approval by the shareholders are
conditioned upon and may not be exercised before receipt of
shareholder approval.  If the shareholders approve the Plan, the
Plan will continue in effect until all awards under the Plan either
have lapsed, been exercised, satisfied or canceled according to the
terms under the Plan. The shares of stock that may be issued under
the Plan shall not exceed, in the aggregate, 100,000 shares of
Common Stock as may be adjusted from time to time due to stock
splits, payments of stock dividends, or other changes in the
structure of the Corporation's capital.

     The Plan will be administered by a committee consisting of two
or more directors (the "Committee"). Persons eligible to receive
awards under the Plan are those key officers and other management
employees of the Corporation and its subsidiaries as determined by
the Committee.

Awards

     Awards made under the Plan may be in the form of: (i) options
to purchase stock intended to qualify as incentive stock options
under Sections 421 and 422 of the Code (referred to herein as
"Qualified Options") and (ii) options which do not so qualify
(referred to herein as "Non Qualified Options").

     Generally, awards may be exercised in whole or in part. Funds
received by the Corporation from the exercise of any award shall be
used for its general corporate purposes. The Committee may permit an
acceleration of previously established exercise terms of any award
as, when, under such facts and circumstances, and subject to such
other or further requirements and conditions as the Committee may
deem necessary or appropriate, including, but not limited to upon a
change of control of the Corporation (as defined in the Plan).


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Qualified Options

     Qualified Options may not be awarded under the Plan more than
ten (10) years after the earlier of the date the Plan is adopted by
the Board of Directors or the date on which the Plan is approved by
the shareholders are only exercisable upon the expiration of six
months after the date of the award and may not continue beyond the
expiration often (10) years beyond the date of the award. The
purchase price of the stock subject to any Qualified Option, as
determined by the Committee, may not be less than the stock's fair
market value (as defined in the Plan) at the time the option is
awarded or less than its par value. If the recipient of a Qualified
Option ceases to be employed by the Corporation, or subsidiary
thereof, the Committee may permit the recipient to exercise such
option during its remaining term for a period of not more than three
(3) months. This period may be extended to a 12 month period if such
employment cessation was due to the recipient's disability, as
defined in the Plan. If the recipient ceases to be employed by the
Corporation, or subsidiary thereof, due to his or her death, the
committee may permit the recipient's qualified personal
representatives, or any persons who acquire the options pursuant to
his or her will or the laws of descent and distribution, to exercise
such option during its remaining term for a period not to exceed 12
months after the recipient's death to the extent that the option was
then and remains exercisable. Qualified Options are not
transferrable except by will or by the laws of descent and
distribution.

Non Qualified Options

     Similar to Qualified Options, Non Qualified Options are only
exercisable upon the expiration of six (6) months after the date of
the award and shall not continue beyond the expiration of ten (10)
years beyond the date of the award. If a recipient of a Non
Qualified Option ceases to be eligible under the Plan before the
option lapses or before it is fully exercised, the Committee may
permit the recipient to exercise the option during its remaining
term, to the extent that the option was then and remains
exercisable, for such time period and under such terms and
conditions as may be prescribed by the Committee. The purchase price
of a share of stock pursuant to a Non Qualified Option, as
determined by the Committee, shall not be less than the stock's par
value (as defined in the Plan) at the time such option is awarded.
Except as otherwise provided by the Committee, Non Qualified Stock
Options are not transferable except as designated by the participant
by will and the laws of descent and distribution.

Federal Tax Consequences

     An employee who receives Qualified Options will not recognize
taxable income on the grant or the exercise of the option. If the
stock acquired by the exercise of a Qualified Option is held until
the later of: (i) two (2) years from the date of the grant; and (ii)
one (1) year from the date of exercise, any gain (or loss)
recognized on the sale or exchange of the stock will he treated as
long term capital gain (or loss), and the Corporation will not be
entitled to any income tax deduction. If stock acquired on exercise
of a Qualified Option is sold or exchanged before the expiration of
the required holding period, the employee will recognize ordinary
income in the year of disposition in an amount equal to the
difference between the option price and the lesser of the fair
market value of the


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stock on the date of exercise, or the setting price. In the event of
a disqualifying disposition, the Corporation will be entitled to an
income tax deduction in the year of such disposition in an amount
equal to the amount of ordinary income recognized by the employee.

     An employee who receives a Non Qualified Option will not
recognize taxable income on the grant of the option, however, upon
exercise, he or she will recognize ordinary income in an amount
equal to the excess of the fair market value of the stock on the
date that the option is exercised over the purchase price paid for
the stock. The Corporation will be entitled to an income tax
deduction in the year of exercise in an amount equal the amount of
income recognized by the employee.

     The foregoing tax discussion is intended as a summary only, and
the federal income tax consequences to any person who participates
in the Plan and to the Corporation may vary from those described
above depending upon individual actions and circumstances.

     As of February 10, 1998, four (4) executive officers were
eligible to participate in the Plan. The size and type of awards are
generally to be determined by the Committee in its discretion. Such
future grants are not presently determinable, and it is not possible
to predict the benefits or amounts that will be received by or
allocated to particular individuals or groups for 1998.

     The following table sets forth the benefits that would have
been granted under the Plan had it been in effect during 1997. The
table assumes that the grants would have been made on December 31,
1997.  On that date, the approximate fair market value of the
Corporation's Common Stock was $55,985,290.  Currently, the
Corporation has definitive plans to issue any benefits under the
Plan.

<TABLE>
<CAPTION>

                                               New Plan Benefits
Name and Position                   Dollar Value ($)                        Number of
Units

                                 <c>                    <c>
J. Gerald Bazewicz, CEO             114,500                2,000
Executive Group                     171,750                3,000
Non-Executive Director
   Group                            0                      0
Non-Executive Officer               114,500                2,000
Employee Group                      11,450                 200

</TABLE>

     The foregoing discussion of the Plan consists of only a summary
and is qualified in its entirety by reference to the full text of
the Plan attached as Exhibit "A" to this Proxy Statement. Exhibit
"A" is deemed to be an integral part of this Proxy Statement and
incorporated in its entirety by reference.

     The Board of Directors recommends a vote FOR the following
resolution which will be presented at the Annual Meeting:


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     RESOLVED, that the First Keystone Corporation 1998 Stock
Incentive Plan, the text of which is set forth in full and in its
entirety in the Proxy Statement for the 1998 Annual Meeting of
Shareholders as Exhibit "A" is hereby approved, adopted, ratified
and confirmed by the shareholders of the Corporation.

     The approval and adoption of the Plan requires the affirmative
vote of a majority of all votes cast by all shareholders entitled to
vote thereon. Proxies solicited by the Board of Directors will be
voted for the foregoing resolution unless shareholders specify to
the contrary on their proxies.